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NOTE: Please confirm through your own research any numbers on which you are to make a buy, sell or hold decision. The Price-to-Book calculations treats Preferred Stock as a debt and not an equity - thus those calculations will vary from most other published numbers. Monthly Sector Summary Since the last update at the end of February, 2004 EPS estimates have increase for BAC [19 cents], BK [5 cents], C [15 cents], JPM [1O cents], ONE [6 cents], UBS [37 cents], WB [18 cents] and WFC [11 cents]. USB's 04 EPS estimate fell a penny. FBF has been merged out of existance. At mid-month, the year-to-date sector price gains fell from +3.51% to -3.46% and yields rose from 2.85% to 3.45%. At month end, the year-to-date sector price gains rose from -3.46% to -0.35%, 04 EPS growth estimates rose from 12.63% [at February ending] to 15.85%, and yields fell since mid-month from 3.45% to 3.34%. Banks & Rising Rates Palmeri & Hovanesian, BusinessWeek 5-24 When interest rates go up, investors traditionally flee bank stocks. Their logic seems ironclad: As rates move higher, banks must offer higher rates to depositors to stay competitive. But if they can't quickly charge borrowers more as well, their profit margins get squeezed. This time around, investors may come to regret their time-tested reaction. In recent years, many banks have expanded into businesses that are less sensitive to interest rates. Others, in anticipation of higher rates, have begun to grant fewer fixed-rate mortgages and hedge existing loans against rate rises. The stronger economy, meanwhile, should lead to both greater loan demand and fewer write-offs for bad loans. So analysts expect that the 36 banks in the Standard & Poor's 500-stock index will earn a combined $91 billion this year, up 9.6% from 2003, according to Reuters Research. Diversification explains a big part of why the impact of higher rates could be less dramatic than before. The 50 largest U.S. banks now get 40% of their earnings from fees generated by the likes of investment banking, asset management, and insurance, up from 26% in 1990, according to Ryan Beck & Co., a bank-stock research firm. At many large financial institutions -- Northern Trust, Bank of New York (BK), First Horizon National (FHN), PNC Financial Services (PNC), and State Street (STT) -- such activities account for more than half of total revenues. Changes in interest rates don't have any direct influence on fee-earning businesses. Investment banking and brokerage earnings, for example, are expected to climb as the market for mergers and initial public offerings heats up. Many banks are protected because they gather deposits through noninterest-bearing accounts. At fast-growing Commerce Bancorp (CBH), based in Cherry Hill, N.J., such accounts make up nearly a quarter of its $22 billion in deposits because clients seem to value good service over earning interest. Many bankers have commercial loan portfolios that benefit from higher rates by lending to businesses at floating rates. At Sovereign Bancorp Inc. (SOV), a large community bank in Philadelphia, some $10.8 billion of its loans float in tandem with market rates while only $8.8 billion of its liabilities do so. Rates, of course, usually rise when the economy starts rebounding -- another plus for banks. While that has yet to translate into a raft of new business loans, it has improved the quality of existing ones: Net charge-offs have sunk to 0.38% of average loans -- half of what they were two years ago. Smith Barney bank analyst Ruchi Madan forecasts an 8% rise in business loans over the next 12 months, boosting bank earnings by about 2% on average and offsetting much of the downside of higher rates. Mid-Monthly Sector Summary Since the end of February, the year-to-date sector price gains fell from +9.97% to -5.58% and 04 EPS growth estimates rose from 17.25% to 31.33%. Over the same time period, EPS estimates rose for BEN [15 cents], BSC [$1.36], GS [$1.94], LEH [$1.31], LM [$1.31], MER [$0.48], MWD [$0.38] and TROW [3 cents]. AMTD and SCH did not have EPS changes. Month Ending Sector Summary Since 5-14, the year-to-date sector price gains rose from -5.58% to -3.72% and 04 EPS growth estimates fell from 31.33% to 30.40%. Over the same time period, EPS estimates rose for MER [3 cents], and fell for AMTD [a penny], BEN [2 cents] BSC [5 cents], GS [4 cents], SCH [2 cents] and TROW [a penny].
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